Maryland Federal Court Dismisses Contract Claims for Lack of Subject Matter Jurisdiction Based on Diversity

November 11, 2021

By: Meagan Cooper Borgerson

     In Armatus Dealer Uplift, LLC v. NBA Automotive, Inc., Civil No. GLR-20-3112 (D. Md. Oct. 26, 2021), the United States District Court for the District of Maryland held it did not have subject matter jurisdiction over a case where the alleged damages arose from separate breach of contract claims and each claim for damages did not meet the threshold for diversity jurisdiction.  In reaching this conclusion, the court also held that the plaintiff failed to allege sufficient facts in its complaint as to damages to meet the $75,000 threshold for diversity jurisdiction.  

     In Armatus Dealer, the defendants were five automotive dealerships located in California.  The plaintiff was a retail warranty reimbursement consulting company that allegedly entered into separate service contracts with each of the defendants.  In its complaint, the plaintiff alleged that each defendant breached its contract with the plaintiff by failing to pay outstanding invoices.  The plaintiff did not allege, however, that the defendants were jointly and severally liable to the plaintiff, nor did the plaintiff allege that the contracts between the parties supported such a claim.

     In dismissing the lawsuit in its entirety, the court held that the claims against four of the five defendants did not survive a facial challenge to jurisdiction because each claim individually did not exceed the $75,000 threshold for federal diversity jurisdiction and, furthermore, the claims could not be aggregated to exceed the $75,000 threshold.  In rejecting the plaintiff’s argument that the claims could be aggregated to invoke federal jurisdiction, the court relied on the fact that the plaintiff’s claims arose from distinct contracts with different defendants.  The court also was not persuaded that aggregation of the claims was permissible when confronted with the plaintiff’s contention that each count involved similar circumstances and identical form contracts.  

     As for the lone cause of action that alleged damages above the threshold to establish diversity jurisdiction (i.e., $75,000), the court gave credence to the defendants’ factual challenge to the plaintiff’s damages claim.  Although the defendants had filed a motion to dismiss, the court noted that, because it was entertaining a challenge to subject matter jurisdiction, it was permitted to consider evidence outside the pleadings without converting the motion to one for summary judgment.  Even then, it was not necessary for the court to consider evidence outside the pleadings; rather, it found that the plaintiff did not “prove the truth of the facts supporting subject matter jurisdiction.”  In this regard, the plaintiff alleged that the fifth defendant was liable for $98,796 in damages, but the plaintiff’s factual allegations stated only that the defendant failed to pay an invoice totaling $38,932.  The defendants argued, and the court agreed that, based on the factual allegations in the complaint, the only possible additional damages the plaintiff could potentially recover (assuming it prevailed) still left it short of reaching the $75,000 threshold for diversity jurisdiction.  In reaching this conclusion, the court emphasized that a plaintiff must make more than mere naked allegations that damages exceed the jurisdictional limit.  Because the plaintiff failed to include additional facts to support its claimed damages in its opposition to the motion to dismiss, the court granted the defendants’ motion and dismissed the case in its entirety.

     The court’s decision in Armatus Dealer provides an important reminder about the limits to federal diversity jurisdiction.  Specifically, while claims can be aggregated in some instances to exceed the jurisdictional limit to invoke subject matter jurisdiction in federal court, all claims will not be aggregated in all instances.  The court’s decision in Armatus Dealer also provides an important reminder about the burdens and heightened pleading requirements placed on a plaintiff to support any claim of diversity jurisdiction in federal court.